What Health-Care Reform Needs to Address

As politicians take up health-care reform, the following two 'structural' issues must be sorted first.

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.

WASHINGTON ( TheStreet) -- As lawmakers take up health-care reform, we ought to recognize how dangerous it is to fix a system without understanding how it became broken in the first place.

Among nations with comparable average life spans, Americans pay more for health care than anyone else in the world. The system is grossly overpriced because it has structural problems, among them the so-called American Rule in lawsuits.

The American Rule stipulates that, everyone is responsible for his or her own legal fees. That means if someone brings a lawsuit against you, though you may have done nothing wrong, you still have to pay for your defense. The American Rule encourages a kind of legalized bullying because the system doesn't deter people from starting lawsuits -- and actually encourages frivolous legal action.

The effect of the American Rule on America's health-care industry is twofold. First, because of frivolous lawsuits, insurance companies like American Physicians Service Group ( AMPH), ProAssurance Corp. ( PRA) and FPIC Insurance Group ( FPIC) charge doctors more for malpractice insurance than is reasonable. As the problem is system-wide, rates are high for all doctors regardless of whether they've ever lost a lawsuit. If they actually do become involved in a lawsuit, the fees go up from there. To pay these unreasonable fees, doctors must charge more for their services, which in turn causes health-care insurance companies like Aetna ( AET), UnitedHealth ( UNH) and Cigna ( CI) to demand premiums that are sky-high. Thus, it costs more to be a doctor in the U.S. than it does anywhere else. American doctors are more vulnerable to lawsuits.